Patents and Innovation Economics

The Ayn Rand Institute held a lecture on intellectual property (IP). The talk was given by Adam Mossoff a law professor at George Mason University School of Law. There are eight parts to the lecture. I provide a short synopsis/comment about each video with a link below in case you want to skip to a particular section of the talk. I have previously written on Ayn Rand’s views of intellectual property, see Ayn Rand on Intellectual Property. My post is more about the issues of patent law, while this lecture is more about how IP is the most fundamental of all property rights.

This part is a general discussion of the state of the economy and how Ayn Rand’s ideas apply. Mossoff argues that intellectual property has risen to prominence and discusses all the new advances in technology that are based on IP. He explains that Leftists and Libertarians have joined in an all out attack on IP, particularly patents. He also argues that “Net Neutrality” is an attack on IP. He notes that recent Supreme Court cases have significantly weakened patent rights. He concludes with the idea that all property is really intellectual property.

From this point forward the lecture focuses on patents and inventions. Ayn Rand stated that patents are the heart and core of property rights. The talk is about the moral justification for IP. All property is based on two concepts: 1) the nature of value, and 2) man as a rational animal and his mind is his basic tool of survival. It is only life that makes the concept of value possible. Unlike other animals, man has to first determine what values are necessary to sustain his life using his mind.

Professor Mossoff seems to be making an argument that all products/services we use are/were inventions (products of the human mind). They may have been invented a long time ago, but they do not exist in nature (separate from man) and therefore they had to be invented by man before they could be produced. He then points out that human needs do result in the creation of products/services to fill those needs. First, the solution to the need has to be invented and produced and only then can the need be satisfied.

The birth of Industrial Revolution corresponds with the creation of property rights in inventions, i.e., patents. I make this point in my post, Source of Economic Growth.

The Industrial Revolution was an explosion of inventions that occured when patents were created. Daniel Webster argued that an invention is the product of the inventor’s mind and he has more rights to his invention than any other property. Mossoff quotes a US judge in the 1800s who states that patents are a natural right. Mossoff argues that theUSpatent system (first modern patent system) was the key reason theUSsurpassedEnglandas the driving force of the Industrial Revolution. This explosion of inventive and economic activity in theUSamazed Europeans.

Ayn Rand in Atlas Shrugged refers to machines as the frozen form ingenuity.

Mossoff states that Jeremy Bentham’s ideas are at the root of Libertarian’s attack on IP. Bentham basic philosophy was Utilitarianism – the greatest good for the greatest number. Bentham stated that the reason for property rights was because of scarcity and conflict resolution not natural rights. Mossoff then points out that the followers of Bentham then argue that there is no conflict between people using the same ideas like there is with land. Ideas can be copied and used endlessly. This argument fails for two reasons. One, there is not conflict between ideas, but there is a conflict when a physical embodiment of the idea (invention) is created. They the copier has clearly limited the return for the inventor. Second, a specific purpose of patent laws is to spread the knowledge behind the invention so that other inventors can take advantage of this knowledge – so patents do not limit access to knowledge they increase it. I discuss the fallacies behind the scarcity theory of property at my post Scarcity: Does it Prove Intellectual Property is Unjustified and Scarcity -2 and Scarcity –3. Mossoff points out that this is the philosophical point of view used by the Cato Institute and the Von Mises Institute to attack patents (IP).

Utilitarianism’s “greatest good for the greatest number” always leads to totalitarianism. It also never leads to the purported goal. The reason for this is that utilitarianism is merely a justification for short term actions. Once something has been produced, it always looks like the greatest good is to redistribute the creation. However, this is clearly only true in the short term. In the long term it is clear that this always destroys the economy. This is the theory behind theUSSR,North Korea, and all socialist states. As Ayn Rand pointed out you only need open your eyes to see that these countries do not produce the greatest good for the greatest number. This is because stealing the product of one’s mind (mental labor is labor) is no different than banning free speech. It stifles the mind, which source of all economic progress (values).

Mossoff shows that Libertarians ignores the creation of these inventions. They just assume they exist. The Leftists version of this in theUSis the statement “theUSis the wealthiest Nation in the World” and therefore we should be able to afford X (national health care, social security, free education, fill in the blank). Both groups ignore how and why these resources were created.

Libertarians deny the very foundation of all property rights in their attacks on IP – the rational mind. Libertarians embrace the anti-mind collectivist premises that Leftist use to attack all property rights. I made the same point in my book The Decline and Fall of the American Entrepreneur.

Value creation is the source of property rights according to Ayn Rand. Mossoff states that it is no coincidence thatRandin Atlas Shrugged had the state nationalize all patents in the infamous Directive 10-289. It was because patents are the most fundamental of all property rights. Man’s mind is the root of all material value ever produced in the world.

Mossoff argues that Locke’s labor theory of property is incorrect. He argues that Locke was specifically talking about physical labor. Note it takes calories and effort to perform mental labor, so the distinction between physical labor and mental labor is not that one involves the physical transform of the world. (A similar point seems lost on computer programmers). I would argue that Locke never intended labor to mean “physical labor” but productive effort in modern terms. However, Locke also never clearly defined that all material values comes from the mind.

The question is from a teacher at theHenryGeorgeSchoolwho suggests that Kilby and Noyce’s decision to resolve the interference (who owns the patent) to the integrated circuit by not pursuing a patent resulted in faster development of the IC. Mossoff points out that this is fallacy. First, other people would have been inspired to design around the patents or license them and there is no evidence that the development of the IC would have been slowed down. (Most patent attorneys will tell you that there has never been a patent that cannot be designed around eventually) Second, the macroeconomic evidence shows that countries with weak patents are slow to adopt new technologies. Third, Mossoff points to the Bayh–Dole Act, which was enacted because federally funded research was not being commercialized. The reason it was not being commercialized was that the ownership rights were uncertain. This is a typical tragedy of the commons problem. Fourth, Mossoff points out that when the uncertainty about the ability to patent genetically modified life forms was removed in theUSthe biotech industry took off. Biotech languished inEuropefor another decade because of their resistance to recognize patent rights in genetically modified organisms.

The questioner clearly did not listen to a single thing that was being said during the lecture.

Another question from a teacher at theHenryGeorgeSchool. He suggest that land is special. He argues that the value of land is often enhanced by what is done around your parcel of land and has nothing to do the owner’s labor. As a result, he argues that people should pay “society” a rent for the use of the land. The questioner is confusing externalities with property rights. Externalities and spillover benefits have been used over and over by socialists to justify stealing from producers for the socialists pet projects. The questioner also confuses luck with property rights. Just because someone is lucky and becomes wealthy does not justify stealing from them.

Mossoff points out that land has value because people used their mind to create value from land. Land has no inherent value.

The next questioner asks about multiple people who contribute to the invention of a chair. In patent law this is why patent are a right to exclude, not the right to make something. This ensures that all contributors have rights to the invention. If we did not have a right to exclude, then the final inventor (or first inventor) would be the only one who would receive an economic return.

Is IP enforcement of copyrights censorship? Mossoff points out that if a Leftist comes into your house and spouts off socialist nonsense it is not a violation of their free speech rights to force them to either leave or shut up. The right to free speech does not give you the right to use someone else’s property. The government’s enforcement of your property rights is not a violation of the 1st Amendment because you do not have a right to free speech while on or using someone else’s property. Milton Freedman showed that free speech is actually impossible without property rights.

Another question suggests that IP slows down the adoption of new technologies. There is absolutely no statistically valid evidence for this point of view. There are anecdotal stories of this happening, but the actual evidence is that countries with weak patent rights have slower adoption rates of new technologies not vice versa.